Global Financial Integrity

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US$400 Billion Smuggled into China from Hong Kong through Trade Misinvoicing Since 2006

Clark Gascoigne, +1 202 293 0740 ext. 222

Fraudulent Trade Misinvoicing Fueling Currency and Housing Speculation within the Country

WASHINGTON, DC – As the Chinese government recently announced moves to crackdown on illicit capital inflows through trade misinvoicing, Global Financial Integrity (GFI) finds that US$400 billion flowed illicitly into China from Hong Kong via trade misinvoicing between 2006 and the first quarter of 2013.  The estimates by Global Financial Integrity were released today in an article by GFI Junior Economist Brian LeBlanc on the website of the Thomson Reuters Foundation.

The Chinese government has expressed concern that illicit inflows aimed at circumventing capital controls are fueling currency and housing speculation in the country.  Mr. LeBlanc—utilizing official trade data from the IMF and the Hong Kong Customs and Excise Department—finds that US$101 billion was illicitly smuggled into China via export over-invoicing in 2012, with an additional US$54 billion flowing in illegally in just the first quarter of 2013. Total illicit inflows via trade misinvoicing dating back to 2006 are pegged at a massive US$400 billion.  GFI believes these are the first public estimates of the amount of illicit money flowing into China from Hong Kong.

Mr. LeBlanc writes:

“How exactly are traders using trade payments to circumvent controls on bringing foreign capital into China? One measurable way which Chinese regulators alluded to is a process known as “export over-invoicing”. This involves the deliberate falsification of export invoices to make it seem as if exporters are sending more goods out than they actually are. By doing this, an  exporter can smuggle in additional capital—under the guise of legitimate trade payments—before diverting the foreign capital (illegally) into other more lucrative  investments like bonds or real estate.

“How big is this hole in China’s capital controls? Although no estimates from SAFE [the Chinese Government’s regulatory body] were provided, over-reported exports are easily detectable through a comparison of bilateral trade statistics. A comparison of China’s trade with Hong Kong shows that an alarming $101 billion of exports simply disappeared at the Hong Kong border in 2012 alone, with an additional $54 billion smuggled in during the first quarter of 2013. The cumulative amount of foreign exchange brought illicitly into China masked as trade payments from Hong Kong since the first quarter of 2006 adds up to an astounding $400 billion.

“Putting this into perspective, the $101 billion of foreign exchange brought in through illicit exports represents about 40 percent of the $253 billion of legal net FDI that China received from abroad during the same year. Such large sums of money have the potential to be destabilizing, and are most likely being used to fuel further currency and housing speculation within the country.

Export Over-Invoicing vs. Yuan Exchange Rate

“Worryingly, there also appears to be a direct correlation between the amount of hot money entering China through export over-invoicing and the US Treasury bond rate. As rates have declined in the US due to the Fed’s monetary stimulus that began in 2009, export over-invoicing has increased in lock-step.

“Will the easing of monetary stimulus in the United States cause this hot money to quickly reverse its course? It’s very possible. A similar event happened in the 1997 crisis, when Alan Greenspan began increasing the federal funds rate following a rebound from the early-1990s recession in the United States. This combined with a strengthening US dollar contributed to investment fleeing Asian markets for greener pastures in a recovering US economy.”

Export Over-Invoicing vs. Treasury Bond Rates

The full article can be read here on the website of the Thomson Reuters Foundation.

To schedule an interview with Mr. LeBlanc or other GFI spokespersons, contact Clark Gascoigne at +1 202 293 0740, ext. 222 (Office) / +1 202 815 4029 (Mobile) / On-camera spokespersons are available in Washington, DC.


Notes to Editors:

  • Click here to read an HTML version of this press release on our website.
  • Click here to read the full article by Mr. LeBlanc on the website of the Thomson Reuters Foundation.
  • Click here to download an Excel Spreadsheet with the data used to compile the above graphs.
  • Click here to read about GFI’s new study, “Illicit Financial Flows from Developing Countries: 2002-2011,” published December 11, 2013.


Clark Gascoigne
+1 202 293 0740, ext. 222 (Office)
+1 202 815 4029 (Mobile)


Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system.

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